Buy 4 September Dogs Of The Dow, Watch 1

Sep. 03, 2022 3:41 AM ETAMGN, BA, CRM, CSCO, CVX, DIS, DOW, HD, IBM, INTC, JPM, JPM.PH, MMM, MRK, NKE, V, VZ, WBA3 Comments

Summary

  • "The Dow® [adds a stock] if the company has an excellent reputation, demonstrates sustained growth, and is of interest to a large number of investors. Sector representation.is also a consideration." - Dow Jones & Co.
  • Thirty Dow stocks represent nine of eleven sectors. Dow tracks utilities as a separate index and omits real estate. Broker top-ten target-estimated net-gains ranged 26%-44.59% topped by CRM 8/31/22.
  • Highest-yield 10 are the September Dogs of the Dow: MRK, CSCO, JPM, CVX, INTC, MMM, IBM, WBA, DOW, and VZ, averaged a 4.53% annual yield.
  • Dow Industrial Index top-ten firms by broker target-price upside, CSCO, HD, VZ, NKE, INTC, DIS, MSFT, V, BA, and CRM, averaged 29.14%.
  • Analyst one-year targets showed ten highest-yield Dow stocks producing 15.45% more gain from $5K invested in the lowest-priced five than from the same investment in all ten. Lower-priced ("Little" Dow dogs) continued their lead by over one and one-half lengths into September.
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Accountant Dog With Calculator

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Foreword

While more than half this collection of Dow Industrials is too pricey and reveals only skinny dividends, four of the five lowest priced Dogs of the Dow are ready to buy. This month, Verizon Communications Inc (VZ), Dow Inc (DOW), Walgreens Boots Alliance (WBA), and Intel Corp (INTC), live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, one more, Cisco (CSCO) showed its price within $5.73 of meeting that goal.

With renewed downside market pressure of 52.35%, it would be possible for all ten (even CVX) to become elite fair-priced dogs with their annual yield (from $1K invested) meeting or exceeding their single share prices by year's end. [See a summary of top ten fair-priced August Dow Dogs in Actionable Conclusion 21 near the middle of this article.]

Actionable Conclusions (1-10): Brokers Expect 24.33% To 45.59% Net Gains From Top-Ten Dow Dogs By September 2023

Four of ten top dividend-yielding Dow dogs (tinted gray in the chart below) were among the top ten gainers for the coming year based on analyst 1-year target prices. So, this September 2023 yield-based forecast for Dow dogs, as graded by Wall St. wizard estimates, was 40% accurate.

Estimated dividend-returns from $1,000 invested in the ten highest-yielding stocks and their aggregate one-year analyst median target prices, as reported by YCharts, created the 2022-23 data points for the projections below. Note: one-year target prices estimated by lone analysts were not applied. Ten probable profit-generating trades projected to September 2023 were:

DOW (1A) GAINERS SEP22-23

Source: YCharts.com

Salesforce Inc (CRM) was projected to net $445.93, based on the median of target price estimates from 46 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 12% greater than the market as a whole.

Boeing Co (BA) was forecast to net $325.41, based on the median of target price estimates from 19 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 35% greater than the market as a whole.

Verizon Communications Inc was projected to net $306.88, based on dividends, plus the median of target price estimates from 22 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 64% less than the market as a whole.

Intel Corp was projected to net $301.36 based on the median of target price estimates from 30 analysts, plus dividends, less broker fees. The Beta number showed this estimate subject to risk/volatility 35% less than the market as a whole.

Visa Inc (V) was projected to net $298.39, based on dividends, plus the median of target price estimates from 31 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 10% under the market as a whole.

Cisco Systems Inc was projected to net $267.29, based on dividends, plus the median target price estimates from 24 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 4% less than the market as a whole.

Nike Inc (NKE) netted $265.94 based on the median of target price estimates from 33 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 3% greater than the market as a whole.

Walgreens Boots Alliance Inc was projected to net $265.56, based on the median of target prices estimated by 15 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 38% less than the market as a whole.

The Walt Disney Co (DIS) was projected to net $263.20, based on the median of target estimates from 29 analysts, less broker fees. The Beta number showed this estimate subject to risk/volatility 20% over the market as a whole.

The Home Depot Inc (HD) was projected to net $260.07, based on the median of target price estimates from 30 analysts, plus the estimated annual dividend, less broker fees. The Beta number showed this estimate subject to risk/volatility 1% less than the market as a whole.

The average net gain in dividend and price was estimated at 30% on $10K invested as $1K in each of these top ten Dow Index stocks. This gain estimate was subject to average risk/volatility 3% greater than the market as a whole.

DOW (2) DOWDOG SEP,22-23 Open source dog art DDC 11 from dividenddogcatcher.com

Source: Open source dog art from dividenddogcatcher.com

The Dividend Dogs Rule

Stocks earned the "dog" moniker by exhibiting three traits: (1) paying reliable, repeating dividends, (2) their prices fell to where (3) yield (dividend/price) grew higher than their peers. Thus, the highest yielding stocks in any collection became known as "dogs." More precisely, these are, in fact, best called, "underdogs".

The September 2022 Dow 30 By Yield

DOW(3)YCRTvsNDXAYields SEP22-23

Sources: YCharts.com and indexArb.com

Actionable Conclusions (11-20): 10 Top Dow Dividend Stocks By Yield Ranged 3.23% To 6.12% Per YCharts And 3.44% To 6.21% Per indexArb

Top ten Dow dogs as of 8/31/22 represented seven of eleven Morningstar sectors by YCharts and indexArb. Nine of ten stocks were the same on the two lists and the order of the last three listed varied from list to list.

Both YCharts and indexArb put the lone communication services sector member on their lists in first place, Verizon [1]. In second place was the lone basic materials dog, Dow Inc [2].

However the lists varied the two healthcare members and their order. Walgreens Boots Alliance [3] was third on both lists. However Merck (MRK) [10] was tenth on the YCharts list and Amgen (AMGN) [9] was ninth for indexArb.

Then three technology dogs were placed in the fourth, sixth, and ninth positions by YCharts: International Business Machines (IBM) [4], Intel Corp [6] and Cisco Systems Inc [9]; however, indexArb listed Cisco [10] in tenth.

The two lists showed a lone industrials dog in fifth, 3M Co (MMM) [5], and the lone energy representative was seventh, Chevron (CVX) [7].

Finally, the two lists agreed that eighth place belonged to the financial services firm, JPMorgan Chase & Co (JPM) [9], to complete their September Dogs of the Dow by yield lists.

DOW/IARB (4A)DIVsPR SEP 22-23

Sources: YCharts.com and indexArb.com

Dividend Vs. Price Results

Graphs above show the relative strengths of the top ten Dow dogs by yield as of market close 8/31/2022. The two sets of charts show the variation of dividends calculated by YCharts.com estimates and those from the arbitrage firm indexArb.com. Due to Amgen on the indexArb list substituted for Merck on the YCharts list, there was a $154.94 difference in total estimated single share dividends between YCharts and indexArb top ten, resulting in a $0.50 average cost per dividend dollar differential. These numbers were just enough to show a 4% variance on the pie charts.

This month six of the top-ten Dow dogs show an overbought condition (in which aggregate single share price of the ten exceeds projected annual dividend from $10K invested as $1K each in those ten). A dividend dogcatcher priority is to select stocks whose dividends from $1K invested exceed their single share price. As mentioned above, that condition was reached by four of the five lowest priced Dogs of the Dow: Verizon Communications, Dow Inc , Walgreens Boots Alliance, and Intel Corp, live up to the dogcatcher ideal of annual dividends from $1K invested exceeding their single share prices. Furthermore, one more, Cisco Systems, showed a price within $5.73 of meeting that goal as of August 31.

Actionable Conclusion (21): Six of Ten Top Dow Dogs Are Overbought

This gap between high share price and low dividend per $1K (or oversold condition) means, no matter which chart you read, 23 of all 27 Dow dividend payers are low risk and low opportunity dogs, with the non-dividend payers being particularly dismal. The Dow top-ten average cost per dollar of annual dividend for August 31, 2022 was $23.17 per YCharts and $22.67 by the indexArb reckoning.

One that cut its dividend after March 2020, Boeing, has re-learned (and is now certified that it knows how to fly in some countries) and is thus prepared to take off again when airlines trust planes made in the USA again. The used plane and Airbus (OTCPK:EADSY) market, however, is soaring. BA is struggling to recover from being in worse shape than was GE (GE) when excused from the Dow index.

As for DIS, the magic kingdom may be close to reinstating a dividend but don't hold your breath. Furthermore, the newest of the three latest no-dividend stocks on the block, CRM, is simply overpriced. Those three non-dividend payers are the true down-in-the-dumps dogs of the Dow, despite analysts high-balling their future share price estimates. All of the three demonstrate a total disregard for shareholders.

Remember, this dogcatcher yield-based stock-picking strategy is contrarian. That means rooting for (buying) the underdog is productive when you don't already own these stocks. If you do hold these stocks, then you must look for opportune pullbacks in price to add to your position to best improve your dividend yield. Plenty of pullback opportunities appear to be ahead.

Price Drops or Dividend Increases Could Get All Ten Dow Dogs Back to "Fair Price" Rates For Investors

DOW(4B)FAIRDVSPR SEP22-23

Source: YCharts.com

The charts above retain the current dividend amount and adjust share price to produce a yield (from $1K invested) to equal or exceed the single share price of each stock. As this illustration shows, four are ideally priced. Beside Verizon Communications, Dow Inc, Walgreens Boots Alliance, and Intel Corp breaking into the ideal zone, one more low priced stock is within $5.73 of making the grade [CSCO].

Five more, however (IBM; MMM; CVX; JPM; MRK), need to trim prices between $35.12 and $82.74 to attain that elusive 50/50 goal.

The alternative, of course, would be that these companies raise their dividends but that is a lot to ask in these highly disrupted, inflationary, yet cash-rich times. Mr. Market is much more effective at moving prices up or down to appropriate amounts.

DOW (5) UP/DNSIDES SEP22-23

Source: YCharts.com

Actionable Conclusions: (22-31) The Dow Index Showed 24.33% To 45.59% Top Ten Upsides To September, 2023; (32) No Downsides Were Revealed By Broker 1-Yr. Targets

To quantify top dog rankings, analyst median price target estimates provided a "market sentiment" gauge of upside potential. Added to the simple high-yield "dog" metrics, analyst median price target estimates provided another tool to dig out bargains.

Analysts Forecast A 15.45% Advantage For 5 Highest-Yield, Lowest-Priced of 10 Dow Dogs As Of August 31, 2023

Ten top Dow dogs were culled by yield for their monthly update. Yield (dividend / price) results as verified by YCharts did the ranking.

DOW (6)10LIST SEP22-23

Source: YCharts.com

As noted above, top-ten Dow dogs selected 8/31/22 by both the YCharts and indexArb methods revealing the highest dividend-yields represented seven of the eleven sectors. Consumer Cyclical and Consumer Defensive selections were missing. (Real Estate is not reported and Utilities has its own Dow Index.)

Actionable Conclusions: Analysts Expected 5 Lowest-Priced of the Ten Highest-Yield Dow Dogs (34) To Deliver 26.66% Vs. (35) 23.09% Net Gains by All Ten Come August 31, 2023

DOW (7) 10GAINS SEP22-23

Source: YCharts.com

$5,000 invested as $1K in each of the five lowest-priced stocks in the top ten Dow Dividend kennel by yield were predicted by analyst 1-year targets to deliver 15.45% more gain than from $5,000 invested in all ten. The third lowest priced, Verizon Communications Inc, showed top analyst-estimated gains of 30.69%.

DOW (8) 10xPR SEP22-23

Source: YCharts.com

The five lowest-priced Dow top-yield dogs for August 31 were: Intel Corp; Walgreens Boots Alliance Inc; Verizon Communications Inc; Cisco Systems Inc; Dow Inc, with prices ranging from $31.92 to $51.00.

Five higher-priced Dow top-yield dogs for August 31 were: Merck & Co Inc; JPMorgan Chase & Co; 3M Co; International Business Machines Corp; Chevron Corp, whose prices ranged from $85.36 to $158.06.

The distinction between five low-priced dividend dogs and the general field of ten reflected Michael B. O'Higgins' "basic method" for beating the Dow. The scale of projected gains based on analyst targets added a unique element of "market sentiment" gauging upside potential. It provided a here-and-now equivalent of waiting a year to find out what might happen in the market.

Caution is advised, since analysts are historically only 20% to 90% accurate on the direction of change and just 0% to 15% accurate on the degree of change. (In 2017, the market somewhat followed analyst sentiment. In 2018, analyst estimates were contrarian indicators of market performance, and they continued to be contrary for the first two quarters of 2019 but switched to conforming for the last two quarters.) In 2020, analyst projections were quite contrarian. The first half of 2021, most dividend stock price actions exceeded all analyst expectations. The last half of 2021 was still gangbusters. The 2022 September sag may free up five or more Dow dogs, sending them into the ideal zone where returns from $1K invested equal (or exceed) their single-share price.

Afterword

Lest there be any doubt about the recommendations in this article, this month there were four Dow Index stocks showing dividends for $1K invested exceeding its single share price: Intel Corp, Walgreens Boots Alliance, Verizon Communications, and Dow Inc.

The dogcatcher hands-off recommendations are still in place referring to one that cut its dividend in March 2020. While Boeing has re-learned (and is certified in certain countries) how to fly, it still has to coax customers to get airborne again. BA faces strong headwinds to stay on the Dow index (despite analyst optimism for the lone American commercial air-crafter).

Also keep hands off the newest non-dividend member of the Dow, Salesforce Inc, until it declares a dividend from $1K invested greater than its single share price.

While subscriptions keep the ship afloat, Disney needs audiences to get strapped back into buying tickets to watch and ride before resuming a dividend.

The net gain/loss estimates above did not factor in any foreign or domestic tax problems resulting from distributions. Consult your tax advisor regarding the source and consequences of "dividends" from any investment.

Stocks listed above were suggested only as possible reference points for your Dow dividend dog stock purchase or sale research process. These were not recommendations.

Graphs and charts were compiled by Rydlun & Co., LLC from data derived from indexArb; YCharts; finance.yahoo.com; analyst mean target price by YCharts. Open source dog art from dividenddogcatcher.com.

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This article was written by

Fredrik Arnold profile picture
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Simple, straightforward 7-step analysis that finds lucrative income stocks.
Fredrik Arnold is my pen name. In 2012 I retired from doing quality service analysis in Boston and moved to North Carolina in 2013, thence to Central Oregon in 2018. My fascination with capital preservation, long-term investments, and trading systems keeps me blogging for Seeking Alpha. My articles focus on dividend yields, analyst median 1 yr targets, free cash flow yields, and one-year total returns as stock trading indicators. These are essential tools for catching the most valuable dividend dogs. My dividend dogcatcher premium site in the Seeking Alpha Marketplace shows annual real-time trading results since 2015.

Disclosure: I/we have a beneficial long position in the shares of CSCO, INTC either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Disclaimer: This article is for informational and educational purposes only and should not be construed to constitute investment advice. Nothing contained herein shall constitute a solicitation, recommendation or endorsement to buy or sell any security. Prices and returns on equities in this article except as noted are listed without consideration of fees, commissions, taxes, penalties, or interest payable due to purchasing, holding, or selling same.

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